MNI US OPEN - BOE Pricing Soars as Mini Budget Slashes Taxes

NEWS

UK (MNI): Chancellor Abolishes Upper Rate Of Income Tax, 1p Cut To Basic Rate From Apr 2023

Chancellor confirms that next year's planned increase in Corporation Tax will be cancelled, and the Bank Surcharge will remain at 8%.

Other measures include: Health and Social Care Levy will be cancelled, increase in ENIC and dividends tax cancelled. Interim increase in National Insurance rate will be cancelled. Stamp duty cut, and from April 2023, “we will have a single higher rate of income tax of 40 per cent”.

BOE pricing has shot higher in response, with 85bps priced for November (up from 75bp this morning). 156bp priced by December (up from around 138bps). August 2023 now pricing 297bp of additional hikes - so almost fully pricing 5.25% - adding in more than one whole 25bp hike over the next 12 months since yesterday's close and around 50bps since Tuesday.

OIL (MNI): Proposed Russian Price Cap Already Working: Yellen

Janet Yellen claims a planned Western backed cap on Russian oil is already making a difference – forcing Russia to offer “enormous discounts” to China and India. She added that the European ban against Russian oil is set to take effect from December will put further pressure on Russia to find buyers for 3mn bpd of crude.

RUSSIA/UKRAINE (MNI): Annexation "Referendums" In Occupied Ukrainian Regions Begin

The administrations of self-proclaimed Donetsk and Luhansk People's Republics and the occupied Ukrainian regions of Zaporizhzhia and Kherson are set to hold "referendums" to join Russia from Friday through Tuesday, with results to be published up to five days after polls close. Local media report that polling stations for displaced residents of the four regions have already opened in Russia's Far East.

JAPAN (MNI Review): BoJ: The Last Remaining Dove Doubles Down

The BoJ reaffirmed its dovish credentials, triggering JPY weakness and subsequent intervention.

Full MNI review here: https://roar-assets-auto.rbl.ms/documents/18543/MNI%20BoJ%20Review%20Sep%202022.pdf.

SOUTH AFRICA (MNI Review): SARB: Look Geared For Further 75bps Move in Nov

The SARB raised interest rates by 75bps to 6.25% in September, inline with consensus as well as market pricing. The bank’s policy statement pointed toward a global phase of persistent, higher inflation and a poorer outlook for economic growth.

Full MNI review here: https://roar-assets-auto.rbl.ms/documents/18545/MNISARBRevSep22.pdf

DATA

EUROZONE DATA (MNI): PMI: Output falls for the first time since Feb 2021 outside of FR/DE

• EUROZONE SEP FLASH SERVICES PMI 48.9 (FCST 49.1); AUG 49.8
• EUROZONE SEP FLASH MANUF PMI 48.5 (FCST 48.8); AUG 49.6
• EUROZONE SEP FLASH COMP PMI 48.2 (FCST 48.2); AUG 48.9

• GERMANY SEP FLASH SERVICES PMI 45.4 (FCST 47.2); AUG 47.7
• GERMANY SEP FLASH MANUF PMI 48.3 (FCST 48.3); AUG 49.1
• GERMANY SEP FLASH COMP PMI 45.9 (FCST 46.1); AUG 46.9

• FRANCE SEP FLASH SERVICES PMI 53.0 (FCST 50.5); AUG 51.2
• FRANCE SEP FLASH MANUF. PMI 47.8 (FCST 49.8); AUG 50.6
• FRANCE SEP FLASH COMP PMI 51.2 (FCST 49.9); AUG 50.4

Cost pressures re-accelerate on energy prices but notably, output outside of Germany and France "fell for the first time since February 2021, as a third successive monthly drop in manufacturing production was accompanied by the first fall in service sector activity since January."

UK SEP FLASH SERVICES PMI 49.2 (FCST 50.0); AUG 50.9 (UK)

UK SEP FLASH MANUF PMI 48.5 (FCST 47.5); AUG 47.3 (UK)

UK SEP FLASH COMP PMI 48.4 (FCST 49.0); AUG 49.6 (UK)

UK SEP GFK CONSUMER CONFIDENCE INDEX -49 (MNI)

FOREX: Dollar on Top, With Greenback Uptrend Intact

• The USD Index remains on top, with the greenback stronger against all othes in G10 and keeping the uptrend intact following Wednesday's Fed decision. This has resulted in further cycle lows for a number of pairs - most notably EUR/USD and GBP/USD, which remain weak headed through to the NY crossover.
• The UK mini budget (also known as the 'Growth Plan') has seen GBP stabilise off the lows, but hold uncomfortably close to multi-decade lows against the USD. The mix of aggressive tax cuts and pro-growth policies has led to a sharp uptick in the Gilt yield curve and implied interest rate hikes over the medium-term, possibly raising further the concerns of a staglationary environment in the UK across the coming few years.
• Bearish trend conditions in GBPUSD remain intact and the pair continues to weaken. The move lower maintains the bearish price sequence of lower lows and lower highs, signalling scope for a continuation. Note that moving average studies are in a bear mode set-up too. The focus is on the 1.1100 handle next.
• Focus turns to Canadian retail sales for July and the prelim September read for US manufacturing, services and composite PMI. The central bank speakers slate sees appearances from ECB's Nagel, SNB's Jordan and Fed's Powell, who speaks at a 'Fed Listens' event.

BOND SUMMARY: Gilt and UK Rate futures plummet

• Massive moves in UK Govies and Rate markets, with futures plummeting, after the Chancellor delivered his mini budget.
• Income tax for earnings is cut for over GBP150k from 45% to 40%, and the income tax cut for basic rate (roughly GBP12.5k-50k) by 1ppt from 20% to 19% a year early from April 2023.
• UK remit Gilt sale rise to £193.9bn vs 192bn estimated.
• The bigger fiscal package and Gilt remit triggered free falls in Rate and Govie futures.
• Gilt fell from 102.31, all the way down to print a 99.99 low, now at 100.43 at the time of typing.
• Gilt/Bund spread broke the 2015 high and trades at its widest level since 1997.
• Europe is fairing better, with all the action in the UK, and Bund trades within ranges, close to flat at the time of typing.
• US Treasuries are also trading inline with Europe, translating in a close to flat spread between Tnote and Bund (1bp tighter).
• Looking ahead, US PMIs will be the notable data.
• ECB Nagel, SNB Jordan, and Fed Powell are the scheduled speakers.

EQUITIES: Stocks Sink as USD Continues to Rip Higher

S&P E-Minis remain soft. Continued weakness confirms a resumption of the bear cycle that started mid-August. The break paves the way for a move towards 3741.75, the Jul 14 low. The key support at 3657.00, Jun 17 low, has also been exposed. This is an important bear trigger. EUROSTOXX 50 remain soft following the reversal last week from 3678.00, the Jun 13 high and this week’s follow through. Key short-term support at 3423.00, the Sep 5 low has been cleared, the break strengthens bearish conditions and opens 3360.00 next, the Jul 14 low.

Note Japanese markets are closed for a bank holiday.

• Elsewhere, in China the SHANGHAI closed lower by 20.541 pts or -0.66% at 3088.369 and the HANG SENG ended 214.68 pts lower or -1.18% at 17933.27.
• Across Europe, Germany's DAX trades lower by 94.56 pts or -0.75% at 12436.07, FTSE 100 lower by 61.58 pts or -0.86% at 7097.88, CAC 40 down 43.45 pts or -0.73% at 5875.24 and Euro Stoxx 50 down 31.26 pts or -0.91% at 3395.82.
• Dow Jones mini down 155 pts or -0.51% at 29989, S&P 500 mini down 22.75 pts or -0.6% at 3748.5, NASDAQ mini down 88.5 pts or -0.77% at 11475.

COMMODITIES: Bearish Threat in WTI Futures Remains Present

Gold is consolidating and the recent pause in the downtrend appears to be a bear flag formation. This pattern reinforces a bearish theme. The recent break of support at $1681.0, the Jul 21 low, confirmed a resumption of the downtrend that started early March. Attention is on $1640.9 next, the Aug 8 2020 low. In the oil space, a bearish threat in WTI futures remains present. The recent break of support at $84.25, the Jul 14 low, confirmed a resumption of the downtrend that started Jun 8 and marks the end of a broad sideways move that has been in place since mid-July. A continuation lower would open $79.31 next, the Feb 18 low. Key short-term resistance is unchanged at $89.35, the 50-day EMA.

• WTI Crude down $1.78 or -2.13% at $81.79
• Natural Gas up $0.02 or +0.34% at $7.134
• Gold spot down $8.95 or -0.54% at $1662.53
• Copper down $11.3 or -3.26% at $335.6
• Silver down $0.19 or -0.99% at $19.4674
• Platinum down $17.09 or -1.89% at $884.45